Friday, December 13, 2013

2013 was marked by a reduction in systemic
risks in the Eurozone, falling inflation and gradually improving growth at low
levels in Europe and the US. As we move into 2014, systemic risks promise to
remain low, real growth is set to
increase substantially and inflation should bottom out. While fiscal policy
was very restrictive in recent years – thereby forcing monetary policy to adopt
an increasingly accommodative stance - it will become much less so in the
quarters ahead. This will force some of the major central banks to limit their
monetary accommodation. As European and US growth improve and the Fed winds
down its asset purchase programmes, the first half of next year promises to see
a continuation of recent trends – bear-steepening of US, UK and EUR curves with
an outperformance of the Eurozone and an ongoing tightening in Eurozone
sovereign bond spreads. However, significant above-trend growth, slowly rising
core inflation and wage pressures on the back of falling unemployment will push
the US Fed into further action towards the end of the year. In line with the
FOMC’s forward guidance, rate hikes will not yet be on the agenda but an outright reduction in USD liquidity
will become increasingly likely via the introduction of reverse repo
operations. This, however, promises to cause a renewed wave of selling across
Emerging Markets and in commodity dependent assets and currencies while also
propelling risk aversion and realized volatility higher across developed
markets. The upward pressure on EUR, USD and GBP vs. a broad basket of
currencies should be maintained in 2014 but as the year progresses, the USD
should increasingly become the outperformer within this group.

Short UST, Gilts, Bunds and JGBs. US-EUR and UK-EUR spread wideners.

Long break-even wideners.

Overweight higher-yielding semi-core and peripheral bonds.

Long USD, GBP and EUR vs. a broad basket of EM and DM currencies. Short CAD, NOK, AUD & JPY.

The second half is likely to be dominated by increasing prospects of monetary tightening in the US and the UK.

Wednesday, October 30, 2013

I have been arguing for several years now that medium term inflation pressures in the Eurozone are very low. Furthermore, as written in spring this year (see: Rising deflation risks in the Eurozone dated April 16), I was looking for inflation to drop to 1% and even below. The latest news on the inflation front confirm this assessment. Today, Spanish HICP fell to a level of only 0.1% yoy in October (vs. estimates of a fall from 0.5% to 0.4%). German inflation dropped from 1.6% to 1.3% in October (vs. expectations of a 1.5% reading). Hence, Eurozone HICP is also likely to fall further. In September headline inflation fell to 1.1% and core inflation to 1.0%, materially below the ECB's "below but close to 2%" target.
Over the past years, inflation in the Eurozone was largely driven by higher commodity prices (amplified by a weaker Euro during the sovereign debt crisis) as well as due to significant fiscal tightening (via higher consumption taxes and higher prices for administered goods and services). The chart below shows the development of various inflation measures. The difference between headline inflation (in blue) and core inflation (in black) is down to the swings in commodity prices. As major central banks (Fed, ECB, BoE) slashed rates to 0% and flooded the market with an unprecedented amount of liquidity to counteract the debt crisis and economic weakness, commodity prices shot higher, leading to upward pressure on headline inflation rates. Now, however, the commodity super cycle has ended (see for example my strategy presentation from May) amid a fundamental shift in the supply-demand balance and weaker growth across a large number of emerging market economies. The shift in the commodities market environment has been amplified by the Fed's tapering talk in spring/summer and by improving growth prospects in Europe and the US as this led to a shift of capital out of commodities back into US and European equities.

Eurozone inflation developments

Source: Eurostat, ResearchAhead

What is more, a large part of core inflation during the Eurozone sovereign debt crisis (i.e. since late 2010/the beginning of 2011) was down to fiscal tightening measures. This can be seen in the difference between core inflation and the core measures ex admin prices (in red) and the core HICP constant taxes ex admin prices (in green). These inflation measures try to deduct the impact of higher consumption taxes and higher prices for administered goods and services from the core inflation measure (as these higher prices were due to the fiscal tightening). As can be seen, this adjusted measure has been running below 1% for quite some time and stands currently at 0.7%, i.e. still significantly below core inflation. As additional fiscal tightening measures become less pronounced, this difference should fall further. Moreover, the level of excess capacity in the Eurozone remains at a record high, monetary and credit dynamics are very subdued and the high level of the Euro decreases prices for imported goods & services.

So far, the record low in Eurozone core inflation was reached at 0.8% in Jan/Feb 2010. However, at that time, the enacted strong monetary and fiscal easing measures lead the Eurozone and the global economy into a fast recovery following the deep recession after the Lehman bankruptcy. The Eurozone composite PMI stood at 53.7 in February, rising to 57.3 in April. Furthermore, commodity prices were rising sharply, leading to rising inflation pressures. Now, however, the composite PMI stands at 51.5, suggesting that Eurozone growth remains below trend for longer and hence excess capacity is unlikely to shrink while commodity prices have been moving sideways (energy) to lower (agriculture). Hence, the low point in Eurozone inflation should not yet have been reached and core inflation is likely to hit a new record low in the months ahead. The ECB will have to take note of these developments.

Friday, August 23, 2013

I have been looking for higher safe yields in Europe and the US for some time now and also expected a growth improvement of net-commodity consuming developed markets vs. the rest of the world. In early July I concluded (see: H213: Limited systemic risks, low inflation & relative DM vs. EM growth improvement): "Those countries and markets which have been supported heavily by capital flowing out
of the US and Europe (i.e. commodities, EMs) are most at risk of a significant underperformance
as the combination of weakening fundamentals and the potential for a tighter
monetary environment amid capital outflows demand its toll. On the other side,
US, Europe and Japan should see a supportive mix of improving growth and an
ongoing growth supportive monetary environment. In turn, risky assets and
currencies of the EM/commodity producing world should continue to be sold on
uptics whereas developed markets’ risky assets as well as US/European fx should
be bought on dips. However, safe nominal and real yields have seen their lows
and moved back on a rising path, especially in the US. "
This conclusion remains fully valid and the current market movements (higher nominal yields, higher risky asset prices and higher currencies in the Eurozone, UK and the US on the one side, lower currencies and risky asset prices in EM and commodity producing countries on the other) promise to run significantly further.

To escape the US Great Recession and the sovereign
debt crisis in Europe, capital has flown into emerging markets and commodity
producing countries in previous years. It helped fuel growth, inflation and
indebtedness and thereby lead to worsening fundamentals in the capital receiving
countries. As systemic Eurozone risks have abated, growth in Europe and the US is
improving and real yields are rising, this capital is now flowing back, exposing an environment of worsened fundamentals in the EM/Commodity producing countries.
Even though their currencies are plummeting, the
capital outflow constitutes a net monetary tightening in the affected emerging
economies as credit availability shrinks and rates are rising. Moreover,
several emerging markets face the problem that a lower external value of their
currencies translates mainly into higher inflation and not higher external competitiveness.
In order to prevent further capital outflows, some countries have already
reverted to rate hikes (thereby further tightening monetary conditions) and/or
started to buy their own currency with the help of foreign reserves (which,
however, tends to reduce liquidity in the domestic financial system). Also the
currencies of developed market commodity producers (i.e. NOK, AUD, CAD) continue
to be at risk. These countries see a deterioration of their fundamental outlook
amid the end of the commodities super cycle. Furthermore, they have been at the
receiving end of large sums of capital flowing out of the Eurozone and the US
as well which now might increasingly flow back. Finally, they were also
beneficiaries as central banks increasingly diversified their reserve
currencies over the past years. As reserve accumulation goes into reverse, though,
this support evaporates. Hence also in this case fundamentals suggest a
deteriorating environment. The difference to emerging markets is that the
respective central banks tend to accept the lower external value of the
currency and can even react with rate cuts as for example in the case of
Australia. As a result, instead of performing pro-cyclical policies into the
slowdown as in a number of emerging markets, they have the ability to enact
counter-cyclical measures. Nonetheless, as growth is weakening and capital is
flowing out, there is more currency weakness in store.
For the Eurozone, the UK and the US the
reversal of capital flows constitutes monetary easing and should lead to an
improvement in credit availability over the medium term. Therefore it
counteracts the growth negative effects from higher yields and higher
trade-weighted exchange rates. In turn, the trends of higher yields and
stronger currencies promise to run further on a strategic time
horizon (i.e. on a 6-9m view to Q1-Q2 2014) and the respective strategic positioning
(shorts in safe bonds, longs in EUR,GBP,USD) should be maintained. Spreads of higher-yielding semi-cores and peripheral bonds
should see a sideways to tighter trading environment given that higher growth improves
their creditworthiness amid a better outlook for the debt-GDP trajectory.
However, the dislocations in emerging
financial markets have the potential (via weaker growth and weaker currencies) to
lead to lower export demand for the developed markets and might in conjunction
with fears surrounding the Fed’s tapering temporarily lead to higher risk
aversion. Within fixed income, this could potentially have the largest effects
on corporate bonds. For one, a large number of corporates has profited
significantly from the booming emerging and commodity producing countries. Furthermore,
corporate bonds in general have been in good demand over the past years as a
means to escape the sovereign debt crisis. Hence, risks are for a partial
reversal of these flows and sovereign bonds should be preferred to corporate bonds.

Friday, July 12, 2013

My outlook and asset allocation for H2 2013 remain mostly unchanged (see also my strategy presentation from May Low systemic risks, low inflation and improving real growth): Systemic risks - which emanated mainly from the Eurozone - remain limited, inflation will be low for longer while real growth in developed markets can improve over the next quarters. On the other side, the outlook for several important emerging markets as well as commodity producing economies has been deteriorating.

The US economy has successfully averted the so-called
fiscal cliff and following a period of subdued dynamic, growth should
reaccelerate into year end. For one, the negative effects of the fiscal
tightening enacted earlier this year should slowly fade while the housing
market has turned around, the output of oil & gas is on a structural upward
trend and the combination of an improving labour market, rising real wages and
high pent up demand for consumer durables should support
consumption growth. Furthermore, the monetary transmission mechanism in the US
has been restored suggesting that the previously enacted monetary easing is
increasingly hitting the real economy. As a result, the US Fed will start
to taper its asset purchases in October and is likely to start rising rates in Q4
2014.
In the Eurozone, the economy remains mired in a mild
recession. However, growth should gradually move into positive territory during
the current half of 2013 and improve further going into 2014 even though it
will remain below trend. For one, the negative growth effects from rising energy prices
should fade while the negative growth effects from a restrictive fiscal policy
environment should slowly become lower. On
the other side, Spain, Portugal, Ireland and Greece have largely restored cost
competitiveness and as a result the positive growth impact from net exports
should increase. In line with the
ECB’s forward guidance, there is no rate hike on the horizon for a long time
and there remains a substantial probability for another cut in the repo rate,
albeit a cut in the depo rate into negative territory carries a very low
probability only. Furthermore, the ECB is likely to prevent an increase in
EONIA levels and should be expected to counteract a further marked fall in
excess liquidity.
Just as the growth environment in the US, Europe and
also in Japan (amid the massive easing of monetary conditions) improves, it will
become more difficult for a number of emerging market and commodity producing economies. China is actively trying to rebalance its economy, moving growth
away from a credit-fuelled and resource intensive investment boom towards more
consumption/services leading to significantly lower growth in the process. Moreover,
a large number of emerging markets have seen a deterioration in their
fundamental environment over the past years just as a constant stream of
capital flowed from Europe and the US into their economies. Private sector
credit growth has been rampant and financing conditions might become
increasingly restrictive in an environment where the Fed ends its USD glut. In
turn, risks will be rising over the course of 2014 that several EM central
banks will have to start selling their foreign currency reserves in order to
support its currency and domestic financial markets.
Those countries and markets which have been supported heavily by capital flowing out
of the US and Europe (i.e. commodities, EMs) are most at risk of a significant underperformance
as the combination of weakening fundamentals and the potential for a tighter
monetary environment amid capital outflows demand its toll. On the other side,
US, Europe and Japan should see a supportive mix of improving growth and an
ongoing growth supportive monetary environment. In turn, risky assets and
currencies of the EM/commodity producing world should continue to be sold on
uptics whereas developed markets’ risky assets as well as US/European fx should
be bought on dips. However, safe nominal and real yields have seen their lows
and moved back on a rising path, especially in the US.

Tuesday, May 14, 2013

I have published a new strategy presentation Low systemic risks, low inflation & improving real growth.
Here are the key points:

A) Is the commodities super cylce over?
Amid the sharp surge in commodity prices over the past ten years, investment into commodities
(commodity production and physical/paper commodity holdings) have surged. Now,
physical supply is increasing at a faster rate than before. Moreover, amid the
subdued commodity price performance of the past two years and improving
prospects for equities, investors have started to shift out of cash and
commodities into equities (aka "the Great Rotation"). Moroever, Chinese growth
has cooled and the Chinese growth mixed has become more dependent on services
growth than before and hence less resource intensive. The result is lower demand
growth. The effect for the net-commodity consuming countries (Europe ex Norway,
Asia ex Malaysia/Indonesia, US) constitute a positive supply shock, i.e. a
reduction in inflation and a support for real growth. On the other side,
commodity producers should see slower growth.

B) US economy to move back on a self-sustainable growth path
The longer-term
outlook for the US economy has become increasingly more favourable. The
structural rise in the output of oil & gas, the sharp reduction in household
debt service ratios, the improvement in bank balance sheets, the restoration of
the monetary transmission mechanism, the recovery in the housing market, an
increasing level of pent up demand (business investment & household durable
goods) combined with a slow recovery in the employment market and a slow rise in
real earnings render the medium-to-long-term growth outlook very favourable. As
growth improves, the fiscal deficit will fall markedly further. Moreover, amid
the rise in oil & gas output, the current account deficit can decrease
slightly further. The current spring soft patch - caused by fiscal tightening
and still wrong seasonal adjustments - will be over soon. Inflation does not
pose a significant problem. Core inflation rates can move slowly higher again
over the medium term. However, as the Fed will likely start to scale back its
asset purchases probably in Q4, the pressure on the USD should be for higher
levels but commodities should suffer further. Hence, headline inflation rates
should remain relatively subdued.

C) Eurozone growth improvement ahead
Eurozone growth
expectations have been lowered further. However, the growth outlook is starting
to improve. Austerity measures have reduced growth by more than 1% in 2011 and
2012 but should the negative effects should weaken over the next quarters as
austerity policies are weakened (Italy) and stretched out over a longer-term
time scale (France, Spain, Netherlands). Furthermore, energy prices have reduced
growth by 0.5% each year since 2010 but this effect should vanish
completely. Spain, Greece, Ireland & Portugal have made substantial progress
in restoring their competitiveness. Hence, export growth should increase and the
adjustment recessions should weaken. Amid the substantial reduction in bond
yields across the Eurozone, monetary accommodation has been increasing and with
the usual lags should become more growth supportive. From a more short term
perspective, the long and harsh winter has weakened the usual spring upswing in
March and up to mid April. But as winter has finally gone, the spring upswing
should gather steam. Finally, with the formation of a government in Italy, the
uncertainty has been reduced and should help the Italian economy to recover. As
a result, the Eurozone growth can improve slowly and start to surprise
positively over the next few months vs. the lowered
expectations.
Inflation risks in
the Eurozone remain low as core inflation is being held back by weak credit
growth and a very high level of unused capacitiy while easing commodity prices
are exerting downward pressure on headline rates as well.
The ECB will likely
not cut rates any further but focus on steps to kick-start an ABS market for SME
loans. This would help the banking sector, however, it will be a slow process
only.
For the sovereigns,
debt sustainability has been increasing amid the sharp reduction in sovereign
bond yields and the slow improvement in primary balances. Furthermore, they have
been shifting banking sector credit risks back onto banking creditors. Systemic
risks remain in the Eurozone remain moderate.

D) Strategic Views & Trades

The
bull market in “safe” bonds (aka Bunds,
UST) has ended. On a 6m horizon, Bund yields should trade back to the upper end
of the trading range of the past 12 months, more substantial upside in UST
yields.

Previous periods of
rising safe yields were driven by additional aggressive central bank easing (QE
by the US, LTRO/OMT by the ECB) or expectations of central bank tightening (as
at the start of this year where markets priced a significant monetary tightening
amid early LTRO pre-payments) the next few months will likely
be driven by an improvement in the real growth environment.
Real yields should be rising and safe curves
should steepen

Wednesday, May 8, 2013

I think that there is a good
case to be made that safe yields – especially for German Bunds - are past their
lows for the year and I shift my tactical stance from neutral to moderately
bearish/selling on uptics with a horizon of one month while I maintain my
bearish view for Bund and UST with a view to year-end.

First, the
ECB has now delivered what I expect is the final rate cut. I do not think that
another rate cut is upcoming, especially not for the deposit rate. A negative
deposit rate is a tool to lower the level of excess liquidity in the financial
system (as no one wants to pay for depositing cash with the central bank) and
hence usually has been used to prevent further money inflows in a period of a
strongly rising exchange rate (i.e. Denmark). However, the ECB does not really
want excess liquidity to drop significantly further in the near term, hence, a
negative deposit rate would not serve their purpose. More important are steps to
kick-start an ABS market for SME loans. As ECB president Draghi stated at the
press conference last week, the ECB is working together with the EIB on such a
plan and the German daily “Die Welt” reported that the ECB is thinking about
implementing a buying programme for such ABS (however, before they are able to
buy SME ABS, there needs to be such a market). Increasing issuance of
securitised SME loans would help banks to lower financing costs and more
importantly should also free up capital. Hence, it would ease the deleveraging
process/free up capacity for new loans and thereby should lower rates for SME
loans and improve their availability. Clearly, though, such a process takes a
long time.

What is
more, though, I think the Eurozone economy is about to turn the corner with
growth improving markedly from here onwards, thereby surprising reduced
expectations.

Unit
labour costs (1999=100, left) Trade balance in % of GDP (right)

Source:
Eurostat

Form a
longer-term perspective, an increasing number of peripheral countries have
significantly improved their competitiveness. Unit labour costs in Ireland,
Spain, Greece & Portugal have come down significantly over the past two
years and the trade balances have moved from significant deficit into surplus.
Amid improved competitiveness, the positive impact from rising export demand
should therefore increase over the next few quarters especially given a
generally more favourable global growth backdrop. Additionally, the negative
impact provided by the austerity measures should be about to get lower from here
onwards. From 2010 to 2012 the cyclically adjusted primary balance in the
Eurozone has moved from a deficit of 2.4% to a surplus of 0.3% according to the
IMF and is expected to reach 1.4% this year. Hence, fiscal policy acted as a
drag on growth to the tune of more than 1% per year. However, the political
support for further austerity measures has been weakened and France and Spain is
about to receive two more years and the Netherlands one year to fulfil their
budget objectives. As the French finance minister has indicated, France is
likely to increase privatisation rather than taxes/or cut spending further.
Moreover, in the case of Italy, the new government is also unlikely to drive
austerity any further (and clearly Italy with a surplus of 2.3% in its primary
balance in 2012 does not need to save more). The net result is that the negative
effect from fiscal policy is likely to drop significantly from here onwards,
helping growth to recover. Furthermore, the rise in oil prices has been a
significant drag for the Eurozone economy as well. 2012 net imports of mineral
fuels increased by approx. EUR 150bn compared to 2009. This is equal to 1.5% of
GDP and hence rising energy prices were a drag on growth of approx. 0.5% per
year in 2010, 2011 and 2012.

However,
oil prices in Euro seem to have peaked in the summer of last year and have since
lost more than 10% with Brent crude in Euro down 8% over the past three months.
Furthermore, agricultural prices also acted as a significant drag on growth,
especially in 2010 but also since the summer of last year when they spiked by
30% within a matter of weeks (measured by the S&P Agriculture Index in
Euros). By now, however, agricultural prices have given up all of their gains
from last summer again. The effect is that the negative drag on growth from high
commodity prices which was apparent over the past three years should fade
completely over the next few months, barring another sharp spike in prices.

Additionally,
bond yields – especially for the higher yielding semi-core and the peripheral
issuers – have dropped sharply over the past months. This increases monetary
accommodation in the semi-core and reduces monetary restrictiveness in the
periphery and should – with the usual lags – also start to have positive growth
effects.

Finally,
there are also three factors which acted to temporarily restrain growth over the
past months but have gone away by now. One was the long and harsh winter which
lasted until almost the middle of April. This meant that the usual seasonal
spring upswing started later/was weaker during March and early April. However,
as winter has finally gone, the spring upswingshould materialize and data referring to late April/May should be
positively affected. This should be seen as one factor which held back
construction activity in Germany which dropped by 4.5% in March. Additionally,
Italian growth should start to surprise positively. The uncertainty ahead of the
election and clearly following the election as no government was formed acted to
depress economic activity. Now, however, as a government has been formed this
should pass again. Furthermore, as already mentioned, Italy does not need to
save more and the new government seems to weaken the austerity efforts. As this
happens growth should improve as well. Finally, uncertainty with respect to
contagion from the deposit levy in Cyprus should have vanished by now.

Hence, I
expect Eurozone growth to improve form here onwards over the next few quarters.
The adjustment recessions in the periphery should weaken while Italy should move
back to a positive growth environment and Germany should move back to slightly
above trend growth as domestic demand improves again.

On a
different note, the outlook for inflation continues to be very favourable. The
high level of excess capacity should continue to exert downward pressure on core
inflation while the lower level of commodity prices will also pressure headline
inflation towards 1%. Hence, nominal growth should continue to be low for the
time being.

For the US
I remain very positive concerning the medium & long-term growth outlook.
Private sector deleveraging should be almost over, the monetary transmission
mechanism has been restored (leading to an easier monetary environment), the
housing market has bottomed and oil & gas output is on a structural upward
trend. However, data for the next few weeks might still be moderately weak (amid
the fiscal easing and seasonal adjustment effects), but should start to surprise
positively again from approx. June onwards.

All in
all, I see increasing evidence that especially Bund yields have their lows
behind them and from a tactic perspective I switch from a neutral to a moderate
bearish bias. However, I do not expect significant yield increases already over
the next few weeks.. Rather from summer onwards the picture should become more
Bund bearish, in line with higher UST yields. Hence, positions should only be
set up on uptics and be kept small for the time being. In conditional space 1:2
put spreads with the help of July options on the Bund future look attractive or
alternatively selling atm calls and otm puts. I am also of the opinion that
outright short positions in inflation linked Bunds are attractive and real
yields should be rising over the next few months as growth improves but
inflation can drop further. However, carry for inflation linkers during the
current month is large before it turns negative thereafter. Hence, slowly
entering shorts over the next two weeks seems advisable in order to reduce the
impact of carry on performance.

Yield and
spread volatility should remain moderate though as systemic risks remain
moderate as well. The higher-yielding semi-core markets (i.e. Belgium and
France) remain attractive for outright longs, however, a larger share of
outright longs should be shifted into spread longs vs. Germany in order to
reduce duration. Selling calls on the Bund future vs. long positions in pick-up
products is also an attractive way to reduce “safe” duration. Buying on dips in
the periphery (i.e. Ireland, Spain, Italy, Greece, Portugal) remains attractive.
Here the focus can be kept on outright long positions.

For the fx
markets I still remain of the opinion that the Euro has more upside left over
the next few weeks vs. a broad basket of currencies (including the USD and JPY).
I do think that the commodity currencies have started a secular downtrend. The
USD should move on a long-term upward trend from summer onwards.

Tuesday, April 23, 2013

Long-time readers will know that I have held an upbeat view with respect to Germany for a long time due to a number of reasons. One of the reasons has been the easy monetary environment provided by record low real yields (ongoing) as well as by the weak exchange rate. More important for Germany than the level of the trade-weighted Euro is the level of the EURJPY cross rate even though Germany does not have strong direct trade relationships with Japan. However, Germany and Japan are key competitors in the global markets for items such as cars, machines or chemicals. The collapse of EURJPY since the outburst of the financial crisis in 2008 has helped German exporters gain market share, especially in Asian markets, at the expense of their Japanese counterparts. Following the radical easing in monetary policy by the BoJ, EURJPY has shot upwards by approx. 30% within a matter of a few months.

EURJPY and EUR trade-weighted index

Source: Bloomberg

This has important implications, not only for the German economy but also for the Eurozone overall:
a) The sharp rise in EURJPY constitutes a net tightening the monetary environment for Germany. German exporters are likely to face a more challenging export environment, especially in Asian markets. This will render the current economic upswing softer than would be the case otherwise.
b) The sharp rise in EURJPY does not have significant tightening effects on the other Eurozone economies, most notably France and the periphery. These economies compete to a much lower extent with Japanese exporters in world markets and hence a higher EURJPY is no issue. Rather, the likely flow of capital out of Japan (as the BoJ reduces the amount of JGBs available for private investors and hence cash needs to be invested elsewhere, likely also in Eurozone bond markets) helps to depress the yields of semi-core and peripheral sovereign bonds. Hence, the monetary environment in the periphery/semi-core gets more accommodative.
c) A weaker-than-expected state of the German economy increases the chances of further easing steps by the ECB (repo rate cut, moving into the direction of forward guidance, unconventional steps to promote the flow of credit to SMEs), supporting growth in the periphery via lower yields and a lower Euro (on a trade-weighted basis).

Overall, the German economy should see a growth recovery but a slower one than would have been the case otherwise whereas the support provided by the monetary environment for the periphery has been increasing and will increase further. As a result, growth differences between various Eurozone countries should become less pronounced.

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About Me

Daniel was Head of Economics & Strategy for developed markets at Dresdner Kleinwort until early 2009 and was responsible for the well-known 'Ahead of the Curve' flagship publication. He started as a Desk Analyst in the mid-90s for the former German government bond trading desk. He then became Head of Rates Strategy early last decade and later on also took responsibility for G10 economics, commodities strategy and asset allocation.
He is now the owner of Research Ahead GmbH located in Frankfurt am Main.

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